Working Paper: CEPR ID: DP7694
Authors: Philip R. Lane; Gian Maria Milesi-Ferretti
Abstract: We document and assess the role of small financial centers in the international financial system using a newly-assembled dataset. We present estimates of the foreign asset and liability positions for a number of the most important small financial centers, and place these into context by calculating the importance of these locations in the global aggregate of cross-border investment positions. We also report data on bilateral cross-border investment patterns, highlighting which countries engage in financial trade with small financial centers.
Keywords: financial centers; foreign assets; portfolio investment
JEL Codes: F31; F32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| SIFCs serve as crucial intermediaries for cross-border capital flows (F65) | significant assets held by banks in SIFCs (G23) |
| SIFCs facilitate a substantial fraction of global capital flows (F65) | impacting the financial stability of advanced economies (F65) |
| Financial interconnections between SIFCs and advanced economies (F65) | distort true exposures of countries' external claims and liabilities (F30) |
| Italian portfolio asset holdings reported as equity claims on Ireland and Luxembourg (G15) | ultimately direct investments outside the Euro area (F21) |
| SIFCs in the securitization boom from 2003 to 2007 (G24) | U.S. banks utilizing offshore entities for off-balance-sheet activities (G21) |